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3 Tiny Stocks to Buy If Biotech Tumbles

Since 2012, biotechnology stocks have tripled the return of the broader S&P 500 -- a stunning return that has caught many investors flat-footed. But since stocks don't go up in a straight line, investors could soon get an opportunity to buy biotech stocks on sale. If so, then you might want to consider any weakness as an opportunity to pick up shares in these three intriguing small-cap biotech plays.

No. 1: Ophthotech(NASDAQ:OPHT)Ophthotech is developing Fovista, a drug that when used alongside other medications may improve vision in millions of patients diagnosed with wet-stage, age-related macular degeneration.

As baby boomers get older, more Americans are being diagnosed with this condition, which has already led to Novartis' Lucentis and Regeneron's Eylea becoming massive commercial successes, with annualized sales of $4 billion and $3.2 billion, respectively.

Following the release of this trial data, Novartis handed Ophthotech $200 million upfront and agreed to pay up to another $800 million in milestones, plus royalties on any eventual sales for overseas rights to Fovista.

If Fovista's data readout for use alongside Eylea are similarly strong and phase 3 trials confirm the phase 2 Lucentis combination results, then Ophthotech could be in a position to become part of a standard of care that is treatment agnostic between these two medicines -- something that could make Fovista an instant blockbuster.

No. 2: Portola Pharmaceuticals(NASDAQ:PTLA)Warfarin's decades-long dominance as an anticoagulant is fading as next-generation factor Xa anticoagulants gain traction with prescribers. But factor Xa drugs, including Johnson & Johnson's Xarelto, do have one major drawback that's holding back their sales growth: there's no antidote approved to reverse their effect.

Because many patients who could benefit from anticoagulant therapy suffer from conditions that increase their bleeding risk, the absence of an anticoagulant reversal agent could be limiting factor Xa inhibitors' market share. But Portola Pharmaceuticals' andexanet alfa could soon change that.

Late-stage trials of andexanet alfa have proven that it successfully reverses the effects of both Xarelto and Bristol-Myers Squibb and Pfizer's Eliquis, and that has Portola Pharmaceuticals planning on an FDA filing for approval by the end of this year. If the FDA grants approval, then andexanet alfa could soon become a must-have drug at hospitals and other emergency care facilities.

Portola Pharmaceuticals could follow up andexanet alfa's potential approval by launching its own factor Xa drug, too. It's currently studying betrixaban in phase 3 trials head-to-head against Lovenox, an anticoagulant that at its peak was raking in $3 billion annually. Results from this trial are expected early next year, and if betrixaban can prove that it's superior to Lovenox, then it could have a second top-selling therapy on the market by 2017.

Amicus Therapeutics' lead product candidate is Galafold, a therapy for Fabry disease that works differently from the most widely-used therapies for this genetic condition. Amicus Therapeutics filed for EU approval of Galafold and could net a green light early next year. It also expects to file for U.S. approval soon.

If approved, the company believes that up to half of all Fabry disease patients would benefit from Galafold therapy, but an even bigger opportunity may exist if ongoing trials of Galafold as an adjunct to current Fabry disease drugs Replagal and Fabrazyme pan out. Those two drugs cost $200,000 per year and posted combined sales of $990 million last year.

Galafold could be worth hundreds of millions of dollars in sales for Amicus Therapeutics, but an additional opportunity may exist if it can also successfully develop a next generation enzyme-replacement therapy for Pompe disease. Research into a therapy for Pompe disease is in the very early stages, so investors shouldn't model for such a drug yet, but it's still something to keep in mind.

Treading carefullySmall biotech stocks pose big-time risks for investors, and all three of these companies are clinical-stage companies, meaning that none of them have any products currently on the market. That makes them especially risky and best suited for the most risk tolerant of us.

While no one knows whether or not these programs will win regulatory approval or become commercial successes, I think they stand a good shot at it and, for that reason, I believe these three could make sense to sprinkle into portfolios, especially at a discount.

Todd Campbell owns shares of Amicus Therapeutics, Ophthotech, and Portola. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Author

Todd has been helping buy side portfolio managers as an independent researcher for over a decade. In 2003, Todd founded E.B. Capital Markets, LLC, a research firm providing action oriented ideas to professional investors. Todd has provided insight to a variety of publications, including SmartMoney, Barron's, and CNN/fn.
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